Microsoft pays big for aQuantive

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NEW YORK -- The recent rush by technology giants to buy online advertising companies continues as Microsoft Corp. said it has agreed to acquire aQuantive Inc. for $66.50 per share, an 85% premium to the firm's stock price as of Thursday, in an all-cash deal valued at about $6 billion.

Wall Street observers said Friday that Microsoft had to pay a steep price to catch up with its competitors, and some argued that the transaction reduces the likelihood that Microsoft will buy or merge with Web giant Yahoo Inc., at least in the near term.

However, shares of aQuantive competitor ValueClick Inc. rose 7.6% to $30 after hitting a 52-week high of $31.59 on Friday as some on the Street suggested it could be the next takeover target for a media or tech firm.

News of the Microsoft-aQuantive deal came a day after advertising conglomerate WPP Group Plc. said it has agreed to acquire online ad firm 24/7 Real Media for $649 million.

Internet bellwether Google Inc. kicked off the deal wave in April when it bought DoubleClick Inc. for $3.1 billion, followed by Yahoo's agreement to purchase Web ad exchange Right Media Inc. for $680 million.

All these deals are designed to boost the buyers' ability to deliver Internet ads, as the acquired companies are generally known for their ad-serving platforms.

"This deal expands upon the company's previously outlined vision to provide the advertising industry with a world-class, Internet-wide advertising platform as well as a set of tools and services that help its constituents generate the highest possible return on their advertising investments," Microsoft said Friday about the aQuantive acquisition.

Microsoft CEO Steve Ballmer said it "represents the next step in the evolution of our ad network from our initial investment in MSN to the broader Microsoft network, including Xbox Live, Windows Live and Office Live, and now to the full capacity of the Internet."

Wall Street on Friday discussed the various implications of the deal, with Jefferies & Co. analyst Youssef Squali saying it "further extends the consolidation in the online marketing segment and solidifies Microsoft's position as a significant third player in the space, behind Google and Yahoo."

The high price tag represents "the scarcity value of quality Internet assets and Microsoft's lack of traction in online advertising to date," he said.

Goldman Sachs analyst Anthony Noto suggested that "there will be continued (deal) activity in this sector" as companies look for acquisitions that strengthen their monetization of online ad opportunities.

While some analysts argued that the aQuantive deal makes a Yahoo-Microsoft combination less likely, Noto said Friday's announcement shows that Microsoft is willing to pay up for assets that fill strategic needs.

"We still see Yahoo (and possibly eBay) as the only asset that solves Microsoft's strategic necessity to have the large installed base of advertisers required to optimize monetization," he said. "The aQuantive deal provides additional advertisers and publishers but not the 300,000-500,000-plus that is required to compete with Google or Yahoo in a world of software as a service."

However, the software giant touted its deal, saying it provides Microsoft "increased depth in building and supporting next-generation advertising solutions and environments, such as cross-media planning, video-on-demand and IPTV."

Founded in 1997, aQuantive is known for its Atlas, DrivePM and Avenue A/Razorfish brands.

The deal is expected to be completed in the first half of Microsoft's fiscal 2008.

AQuantive, which has about 2,600 employees, will continue to operate from its Seattle headquarters as part of Microsoft's Online Services Business operation, the companies said.